AFRICAN CONTINENTAL FREE TRADE AREA: ADVANCING PAN-AFRICAN INTEGRATION - SOME CONSIDERATIONS - UNCTAD
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U n i t e d N at i o n s C o n f e r e n c e o n T r a d e A n d D e v e l o p m e n t
African Continental Free Trade Area:
Advancing Pan-African Integration
Some Considerations
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
AFRICAN CONTINENTAL FREE TRADE AREA:
Advancing Pan-African Integration
Some Considerations
New York and Geneva, 2016
Note
The material contained in this publication may be freely quoted or reprinted but acknowledgement is
requested, together with a reference to the document number. A copy of the publication containing
the quotation or reprint should be sent to the UNCTAD Secretariat, at: Palais de Nations, 1211,
Geneva 10, Switzerland.
The designations employed and the presentation of the material do not imply the expression of any
position whatsoever on the part of the United Nations Secretariat concerning the legal status of any
country, territory, city area, or its authorities, or concerning the delimitations of its frontiers and
boundaries, or regarding its economic system or degree of development.
The views expressed in this publication reflect solely the views of the author.
This is an unedited publication.
Acknowledgements
This study was prepared for UNCTAD by Mr. Osvaldo Agatiello under the framework of a Development
Account Project 1213 AR on "Strengthening Capacities of African Countries in Boosting Intra-African
Trade". It was supervised by Mr. Bonapas Onguglo, Senior Economic Affairs Officer, UNCTAD, and
Mr. Ahmed Mutkhar, Economic Affairs Officer, UNCTAD. It was also reviewed by Mr. Joseph Kodzo
Banini, consultant with UNCTAD.
UNCTAD/WEB/DITC/2016/5
Copyright©United Nations, 2016
All rights reserved
Acronyms and Abbreviations............................................................................................................................... I
INTRODUCTION ..................................................................................................................................................... 1
Chapter 1 Challenges and Opportunities for African Continental Integration and Trade Development ..........
1.1 Challenges ............................................................................................................................................. 2
1.2 Opportunities ......................................................................................................................................... 4
Chapter 2 The Content of the Continental Free Trade Area .......................................................................... 8
2.1 A comprehensive Continental Free Trade Area ..................................................................................... 8
2.2 Eliminating tariffs and non-tariff barriers on trade between African countries....................................... 8
2.3 Services trade agreement.................................................................................................................... 11
2.4 Other policies ...................................................................................................................................... 11
Chapter 3 Complementary Enabling Environment ...................................................................................... 13
3.1 Social, cultural, security and political governance .............................................................................. 13
3.2 Strategic Commodities ........................................................................................................................ 15
3.3 Money and Finance ............................................................................................................................. 17
Chapter 4 Intra-African Trade Growth: Some Guiding Principles and Priorities .......................................... 22
4.1 Guiding Principles ............................................................................................................................... 22
4.2 Continent-wide Priority Building Blocks .............................................................................................. 22
Conclusions .......................................................................................................................................................... 27
Bibliography...................................................................................................................................................... 29
Annex .................................................................................................................................................................... 33
End Notes ......................................................................................................................................................... 42
Figures
Figure 1: Sub-regions of Africa ............................................................................................................................... 3
Figure 2: LLCs in Africa ........................................................................................................................................... 4
Figure 3 : Applied tariffs for African countries1988-2013 (percentage)................................................................... 9
Figure 4: Trade tax revenue of African countries, 1988–2013 (Thousands of United States dollars).................... 10
Figure 5 : Piracy & Armed Robbery Map 2014...................................................................................................... 15
Tables
Table 1: Africa and World Output ........................................................................................................................... 2
Table 2: African Fragile States among the World’s Fastest Growing Economies ................................................... 2
Table 3: Top 10 UN Suppliers of Goods and Services USD millions, percentages ................................................ 6
Table 4: Size of the Shadow Economy: Selected African Countries As percentage of GDP 2007 ....................... 14
Table 5: African Production of Selected Raw Materials 2012, percentages ......................................................... 16
Table 6: Africa’s Major Oil Producers 2013 estimates .......................................................................................... 16
Table 7: Main Donors for Infrastructure Projects in Sub-Saharan Africa 2013 ..................................................... 17
Table 8: The Top 30 Sub-Saharan Multinational Corporations ............................................................................. 18
Table 9: Africa’s Sovereign Wealth Funds ............................................................................................................ 19
Table 10: Stock Exchanges in Africa Having Received SWF Investments ........................................................... 20
Table 11: Top 10 African Countries by Reported Gold Holdings, June 2014 ....................................................... 21
Acronyms and Abbreviations ACB African Central Bank Common Monetary Area APSA Continental Peace and Security Architecture ARIA Assessing Regional Integration in Africa AUC African Union Commission BIAT Boosting Intra-African Trade CSR Corporate Social Responsibility CSI Container Security Initiative CTC change of tariff classification CADSP Common African Defense and Security Policy CAD Fund China-Africa Development Fund EU European Union FDI Foreign Direct Investment GVC Global Value Chains IMF International Monetary Fund MIP Minimum Integration Programme OECD Organisation for Economic Cooperation Development OPEC Organization of the Petroleum Exporting Countries () OCA optimal currency area RKC Revised Kyoto Convention RTA regional transit arrangements RoO Rules of origin SWFs Sovereign Wealth Funds TET Trade Enabling Tools TSI Trade support institutions UNECA United Nations Economic Commission for Africa UNCTAD United Nations Conference on Trade and Development WAMA West African Monetary Agency WAMI West African Monetary Institute WTO World Trade Organization I
INTRODUCTION African countries have declared their paramount interest in attaining deep economic integration at the continental scale since emancipation from colonial control dominated their political agendas half a century ago. In the new century that resolution has gained momentum through successive African Union decisions to expedite regional economic integration with a view to forming a continental free trade area (CFTA) by 2017 and an economic union by 2019. ‘The ultimate goal of the African Union is full political and economic integration leading to the United States of Africa’.1 It is acknowledged that the path to get there will not be easy but a number of studies suggest that it is not only feasible but also important for Africa’s economic development. What rests ahead, therefore, is to make decisions on how to speed up the process and clear the obstacles to address the inevitable challenges so as to realize the ambition of an integrated African continent politically, economically, socially and culturally with the resulting development gains. The CFTA is a key driver for Africa to realize the structural transformation and industrialization of Africa as envisaged in the AU Agenda 2063, as well as to promote implementation of the United Nations 2030 Agenda for Sustainable Development. The path towards an accelerated pan-African economic integration presents formidable political, economic, legal and functional/institutional challenges that need to be tackled efficiently. It requires an approach that economizes scarce resources, avoidable errors, unintended delays, and predictable frustrations. High on the list of challenges is the conflicting disciplines and benefits of different African Regional Economic Communities (RECs) already in place, most countries being parties to more than one. Convergence between RECs will be of the essence for progress, as agreed upon in the African Union Minimum Integration Programme of 2009 (MIP) that sets priorities for enhanced inter-sub regional cooperation, independently of the priorities of each REC and of individual countries. The impact of the CFTA on trade flows could be significant rather rapidly, according to many projections, and the loss of export income from the rest of the world being more than offset by intraregional trade growth. However, to multiply the benefits of the CFTA – expanded markets for goods and services, unobstructed factor movement, new investment opportunities, and the like – an ample vision of trade, investment and business facilitation needs to prevail. Hence other important challenges and opportunities come to the fore, like the free movement of people across borders, with the social, economic and security dilemmas it implies, or the insufficient financing of badly-needed infrastructure projects. Relinquishing national priorities in favour of regional ones requires firm, intertemporal determination and coordination, a philosophy leading to the adoption of directive principles of state policy, beyond the national plane. A phased approach has been agreed upon, concentrating on the liberalization of trade in goods first, and that of services as well in a first phase, followed with the straightening up of intellectual property rights, competition and investment protection in a second phase. Several queries arise, as detailed planning requires definition on the sources of finance and investment, in an environment of scarcity of means of payment. This also means that financial development cannot wait for integration to fructify but rather that it is a condition for it, and that neither governments nor private operators can make progress without reasonable concertation. There is financing available for trade development that can be mobilized. Also, foreign investment by sovereign funds and multinational enterprises, including African ones, as well as cross-border financing are on the rise in terms of size, reach and complexity. This report provides an overview of the opportunities and challenges for African continental economic integration through the Continental Free Trade Area (CFTA) initiative. This is discussed in chapter 1. It then discusses complementary building blocks for intra-African trade to flourish within Africa when it is stimulated by the adoption and implementation of the CFTA. This is provided in chapter 2. Some guiding principles for approaching the CFTA and priority policy measures for adoption by African countries to ensure sustained trade growth and economic integration following the CFTA are discussed in chapter 3. The report concludes with some remarks on African visionary approach to be taken in building the CFTA, and not just as a stand-alone free trade agreement.
Chapter 1 Challenges and Opportunities for African Continental Integration
and Trade Development
1.1 Challenges
The African continent has a relatively small share of world output and an even smaller one of world
exports (3.2%) and global foreign direct investment (FDI) net flows (3.9%). But the continent was among
the fastest growing region in the world in 2013, closely followed by Asia and the Pacific (see Table 1). It is
the fourth regional cluster in terms of output volume, smaller than Asia and the Pacific, North America and
Europe, comparable to South America, and bigger than the Middle East. South Africa is the only country
standing for the continent in the Group of Twenty major economies (G-20) since its inception in 1999.2
Table 1: Africa and World Output
2013 GDP Annual Share of World
USD trillion, PPP percentage GDP
growth
Africa 7.8 5.6 5.2
North Africa 2.7 5 1.9
Sub-Saharan Africa 5 6 3.3
Source: IMF Data Mapper, World Economic Outlook, October 2014.
Africa is a vast continent indeed. It has an expanse representing 1/5 of the planet’s landmass, roughly
equivalent to three times the size of Europe, with a formidable variety of geographies, cultures, languages,
traditions, and historical trajectories. Africa has the world’s largest concentration of least developed
countries (34), low human development index (37) and low income and lower middle-income countries (43).
This has been no impediment to some of them in becoming some of the fastest growing economies (see
Table 2).
Table 2: African Fragile States among the World’s Fastest Growing Economies
2001-10 2011-15
Angola 11.1 China 9.5
China 10.5 India 8.2
Myanmar 10.3 Ethiopia 8.1
Nigeria 8.9 Mozambique 7.7
Ethiopia 8.4 United Republic of Tanzania 7.2
Kazakhstan 8.2 Viet Nam 7.2
Chad 7.9 Congo 7.0
Mozambique 7.9 Ghana 7.0
Cambodia 7.7 Zambia 6.9
Rwanda 7.6 Nigeria 6.8
Source: OECD 2014
African continent is classified into five sub-regions, namely Northern (7 countries), Western (15), Central (7),
Eastern (14) and Southern (11) Africa (see Figure 1). Each sub-region, given its sheer size and complexity,
constitutes a major challenge in itself.
2
Figure 1: Sub-regions of Africa
Source: United Nations Statistics Division Standard Country and Area Codes Classifications
The African continent, its sub-regions, countries and the key development issues faced, from
infrastructure development to trade facilitation priorities to targeted development financing and beyond,
have been studied in depth at the national, sub-regional, regional and international levels, and by the
public and private sectors. However, any serious study will have as a point of departure the studies of
UNECA, produced in cooperation with the African Union Commission (AUC) and the African Development
Bank (AfDB), particularly the Assessing Regional Integration in Africa (ARIA) series, published biennially
since 2004. These provide analyses on Africa’s queries, difficulties and solutions with an African
perspective for Africans. Additional useful insights can be garnered from UNCTAD's analyses such as the
Economic Development in Africa report series.
Political instability and at times armed conflicts have reduced the health, education, public services,
justice and security systems of some African countries. In many, they are well below the needs of a fast-
urbanizing population. Building those systems up as a priority will take time and huge financial resources.
These realities serve as a warning that no single, off-the-rack solution will prove effective for
socioeconomic development in all jurisdictions. For instance, it is fraught with risk, given the orders of
magnitude and intricacies at play, to predict when some of the transcontinental transit corridors envisaged,
networks of transport facilities and infrastructure that are crucial for addressing the predicament of the 16
land-locked countries of Africa, may reach completion (see Figure 2).3
3
Figure 2: LLCs in Africa
Central and East African LLC cluster (10 countries): Burkina Faso, Burundi,
Central African Republic, Chad, Ethiopia, Mali, Niger, Rwanda, South Sudan, Uganda
South African LLC cluster (4): Botswana, Malawi, Zambia, Zimbabwe
'Single' LLCs (2): Lesotho, Swaziland
1.2 Opportunities
International trade is not a silver bullet to prosperity but it can go a long way into paving closer, profitable
relationships between neighbouring States (cross-border trade) and sub-regional blocs (intra- and inter-
sub-regional trade) and, from there, serve as a platform for more enhanced export targets (intra-regional,
inter-regional, and global trade) and stimulating economic growth, income and job creation, and structural
transformation. Intra-regional trade is but one building block in a set of trade strategies available to African
countries. It is best used in combination with others including strategic partnerships, sub-regional and
regional integration, interregional trade arrangements, multilateral trade agreements and unilateral
economic reforms.
A key question, therefore, is whether continental integration is a good enough idea for Africa from the
economic standpoint. From a political standpoint it also is a way to respond to the colonial preconception
that the ‘break-up’ value of Africa exceeds that of the collective value.4 As in all cases of collective action,
there inevitably are ‘free riders’, who will benefit from expanded market access, economies of scale and
cheaper imports resulting from integration but still elude their share of the burden. There is need to put in
place policies and mechanisms to discourage such behavior.
It is unlikely that more than one or two African countries could opt for the unilateral trade liberalization
model, while the prospect of going it alone by pursuing strategic partnerships with capital-rich countries
willing to consolidate their energy and food security looms larger in sub-Saharan Africa than in any other
resource-rich region of the globe. For the vast majority of nations, sub-regional and regional integration,
4compatible with the multilateral trading system (MTS), constitutes the best option. Whether it is the first-
best option will largely depend on its evolution as a stepping-stone towards convergence with the world
economy. In the era of globalization, there is limited to no room for autarkic approaches, a practical
imperative in times of war, civil or international, left behind for the most part.5
There are many advantages of adopting a step-by-step, ever-more-encompassing approach to African
continental integration and international trade development, including:
a. Going from smaller to bigger targets makes the learning process economical in terms of time,
money and effort.
b. It may create a dynamic of achievement and stepped-up advancement, as awareness,
opportunities and contacts flourish.
c. It may foster the creation and development of regional and international value chains, and the
integration into existing ones, that take advantage of economies of scale and spread best
practices.6
d. It may create opportunities for sharing costs and benefits of investment due to the acquisition of
needed technology and know-how by countries and firms.
e. It may nurture the adoption of internationally-recognized standards and procedures that may add
value to export products and open up access to more demanding marketplaces in terms of
technical standards such as for design, packaging, marketing, branding, quality control, customer
satisfaction, corporate social responsibility (CSR), and others.
f. It may help diversify the prospects of financing and investment by private and public sources of
funding.
Most of the 54 African Union member countries are members of more than one regional trade bloc and
intergovernmental organization, setting out conflicting disciplines and benefits (see Annex Tables 1, 2 and
3). As it is the case with the proliferation of regionalism elsewhere, this may complicate integration rather
than not, as clashing regimes may conspire against expedited clearance at the border, and often require
political intervention to resolve conflicts, reducing the benefits of automaticity (the ‘spaghetti bowl effect’).
This problem is highly diagnosed in the literature already.
Of the many sound initiatives advanced in the African Union Action Plan for Boosting Intra-African Trade
(BIAT), from the international trade standpoint it is important to dedicate especial efforts to the following:7
a. Boost intra-African trade in food products. Foodstuffs are among the most highly protected
import products, especially by contiguous neighbours. Although necessary, reaching agreement
on lowering agricultural price and quantity restrictions may prove very difficult. It may be
preferable to address this pressing question while simultaneously ameliorating productivity in the
agricultural sector.
b. Undertake commitment to liberalize trade in environmental goods can spearhead efforts in a
continent that needs to radically improve its environmental conservation and sustainable use
practices. This is particularly important for the Democratic Republic of Congo, Madagascar and
South Africa, three of the world’s 17 mega-biodiverse countries, the top repositories of life’s
diversity on Earth that is essential, inter alia, to medicinal product innovation.8
c. Expediting the movement of goods across existing trade corridors. Some cross-country, ‘soft’
trade facilitation activities are envisaged for short-term implementation while ‘hard’ trade
facilitation requires long-term commitments. This is a highly diagnosed area, as a result of the
national self-assessments of trade facilitation needs and priorities conducted since 2007, a
national effort supported by WTO, WB, WCO, UNCTAD, OECD, and IMF. It is hard to over-
emphasize the importance of concentrating efforts in identified priority initiatives with high impact,
like the implementation of joint one-stop border posts (OSBPs) and the standardization and
complete interconnectivity of customs clearance software across countries.9
d. Establishment of integrated and interconnected trade information systems. The development of
an African trade repository or single window (AfroNet, AfTR, AfSW) would nurture uniformity and
5standard-sharing in national single windows through the adoption of a regional pattern. With the
potential of producing a quantum leap forward in ‘soft’ trade facilitation, this flagship project
should be a top development priority. Reaching out to the precedent of the ASEAN Trade
Repository (ATR), a regional articulation of national trade single windows (TSW) set for full
operation by 2017, would be a convenient shortcut to implementing state-of-the-art practices
proven effective in one of the world’s peak trading blocs.10
e. Buying from African companies for humanitarian and aid interventions. In 2013 the UN system
bought goods and services for an aggregate of USD 16.08 billion.11 Ten supplying countries
made up for 44.5 percent of the total, including Kenya as number 10 (see Table 3). Eight African
countries were among the top 20 developing country suppliers, namely Kenya (with a share of 2.4%
of the aggregate), Sudan (2.2), Ethiopia (1.7), South Africa (1.2), DR Congo (0.9), Uganda (0.9),
Zimbabwe (0.9), and South Sudan (0.8). Overall, it is a rather insufficient share, especially when
considering that many, if not most, humanitarian and aid interventions not only by UN agencies
but also by other intergovernmental and nongovernmental organizations and traditional donors
have African countries as target beneficiaries. It would be advisable and economically logical to
press on for more UN procurement from African producers of goods and services. There is much
room for growth in this field starting immediately, including improving the government
procurement patterns in many countries.12 The first steps need to be in the diplomatic and
political realms nonetheless.
f. Building regional and eventually continental export value chains to respond to the volumes that
may not be within the reach of a single country’s exporters and encompassing goods and
services with increasing value added. This is quite a quest better undertaken by the private sector,
with the subsidiary support of governments and specialized regional institutions especially in
creating policy stability, investment friendly and secure environment.13
Table 3: Top 10 UN Suppliers of Goods and Services USD millions, percentages
Countries Goods Services Total Share
United States of America 568.7 1,100.7 1,669.4 10.4
India 953.4 127.8 1,081 6.7
Switzerland 267.7 448.9 716.6 4.5
Afghanistan 50.5 650.4 700.9 4.4
Denmark 299.5 253.2 552.7 3.4
Belgium 500.2 49.9 550.1 3.4
United Arab Emirates 363.8 138.2 502.1 3.1
France 369.9 131.8 501.7 3.1
United Kingdom 250.1 243.7 493.8 3.1
Kenya 86.2 307.3 393.5 2.4
Top 10 total 3,710.0 3,452.0 7,162.0 44.5
Grand total 7,633.8 8,449.7 16,083.4 100.0
Source: 2013 Annual Statistical Report on United Nations Procurement.
The process to substitute current African countries' imports from extra-regional trade partners for regional
ones requires the use of information that is readily and freely available through UN and other sources,14 as
well as locally in Governments. To start with, it is necessary to identify the most important import products
by African country, then the original exporting countries, and finally find alternative African exporters to the
non-African ones. This is the beginning, not the ending of the process, as studies need to be conducted
to ascertain the enabling environment in the corresponding African country and its export capacity,
screening the companies with potential export volume, and facilitating buyers-sellers meetings to actually
help those close businesses. This is a scalable approach (learning by doing), comprising trade flow
analyses, country studies, in-country due diligence, and bringing together potential buyers and sellers
matched through ad hoc software.15 It is so technical that some national trade promotion agencies in
6developed countries have been largely compacted or privatized altogether to facilitate trade relations.16 UNCTAD has conducted several studies for the potential for intra-African trade generally, the sectors that could be considered and future areas based on dynamic export potential. 7
Chapter 2 The Content of the Continental Free Trade Area
This chapter provides succinct overview making the case for a comprehensive CFTA. A comprehensive
CFTA can leverage continental resources and potential to energise and boost intra-Africa trade and
development
2.1 A comprehensive Continental Free Trade Area
As a modern trade agreement, the content of the CFTA will unavoidably be very comprehensive. African
leaders have already decided that the CFTA will have to lead to the elimination of tariff and non-tariff
barriers to their trade in goods and services, so that an African free trade area is to be established as a
stepping stone to an African customs union and, later, a fully-fledged African economic community.
For African countries, the economic gains from further liberalizing merchandise trade are potentially high.
Such gains are enhanced when addressing TBT and SPS regulations as well as preferential RoO, as these
are expected to maximize the positive impact on intra-African exports of agriculture, food and industrial
products. However, the gains from liberalizing cross-border labour flows are expected to be even higher,
and those from boosting services trade and information flows have multiplier effects that would be very
significant. In addition, the setting up of complementary support systems for trade creation and economic
growth would be essential. 17 For instance UNCTAD notes that Africa’s poor intraregional trade
performance hides the fact that such trade could increase substantially if some key constraints,
particularly infrastructure-related, were addressed.18
Key drivers and tools of regional integration for the CFTA may include the formulation of development
corridors in Africa. The Maputo Development Corridor provides an important case study of a successful
development corridor. It was the first spatial development initiative to be implemented at the regional level
and has been one of the most successful initiatives to date. Another tool involves special economic zones.
Such zones can take different forms, depending on their intended purpose, including export processing
zones, free trade zones, enterprise zones and free ports. Mauritius is an example of a successful export
processing zone.
Also, it is important to remember that the gains that flow from openness are not only economic in nature.
Cross-border exchanges also offer, among other things, cultural, political and security benefits, not to
mention confidence building among nations and economic actors.
2.2 Eliminating tariffs and non-tariff barriers on trade between African countries
Eliminating tariffs on trade between African countries is a major goal of the CFTA. Such tariff dismantling
on a continental scale would build on progress in the TFTA negotiations and other RECs. As the expected
economic gains from further liberalizing merchandise trade are potentially high, the CFTA negotiations
should include key WTO and WTO-plus elements in terms of tariffs and non-tariff barriers to trade in
goods (and services).19
A recent study for UNCTAD (Farahat, 2016) argues that at the outset of any tariff-reduction negotiations it
is essential to agree on the base from which tariffs are to be removed. In order for the CFTA to have a real
impact on trade, tariff-reduction discussions should use currently applied tariffs as their starting point.
Similarly, the latest Harmonized System coding system applicable must be agreed upon in order to
integrate the largest number of new products into the tariff reduction mix. It would be useful to adopt a
formula approach which may include the following:
• To agree that all tariffs bound at zero will stay that way, and that they will not be considered further in
the negotiations;
• To agree that all tariffs bound above zero, but with an applied rate of zero, will be eliminated from the
entry into force of the agreement;
8• To agree that all tariff lines for goods entering at zero under temporary concession schemes,
autonomous tariff quotas and the like will also be eliminated from the entry into force of the
agreement; and
• To agree that all applied tariff rates of 5 per cent or less will be eliminated on entry into force of the
agreement.
This approach is not a panacea. Economies differ in their outlooks and capacities. However, such an
approach will in many cases remove a significant number of tariff lines from further consideration. The
negotiators can then direct their attention to the remaining tariffs, many of which usually turn out not to be
controversial at all. In an ambitious initiative, ambitious liberalization is needed, with appropriate
complementary measures to adjust economies to benefit from market opening.
Tariff cuts will have negative repercussions on the trade tax earnings of countries and possibly lead to the
demise of uncompetitive industries and services. The losses, however, may be compensated by the
expected strong expansion in intra-African trade from the formation of the CFTA. UNCTAD estimates
show, for example that, in general despite cuts in applied tariffs by sub-Saharan African countries
between 1998 and 2013, an increase in trade tax revenues took place over the same period due to the
increase of trade, except in 2012–2013 when declines were experienced (see figures 2 and 3).
The burden of adjustment by African countries to cushion the impact and build up new industries could
also be less painful as such realignments of production and competitiveness have already been taking
place. In fact, with the CFTA, an opportunity is presented to adjust economies by way of formation and/or
integration into regional value chains in manufactures, agriculture and services. This strategy offers better
prospects for longer term adjustment. A particular focus could be placed on supporting the involvement of
economically weaker African countries in building supply capacity.
Figure 3 : Applied tariffs for African countries1988-2013 (percentage)
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Tariff year
Simple average Weighted average
Source: UNCTAD secretariat.
9Figure 4: Trade tax revenue of African countries, 1988–2013 (Thousands of United States dollars)
4 000 000
3 500 000
3 000 000
2 500 000
2 000 000
1 500 000
1 000 000
500 000
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Tariff year
Simple average Tariff revenue-weighted average
Source: UNCTAD secretariat
Also, the increased interest of consumers in natural, healthy, environmentally-friendly and fair trade
products has the potential to offer an innovative avenue to strengthening the sustainable production, trade
and consumption of biodiversity-based goods and services. Africa is endowed with rich biodiversity
resources. The CFTA could foster intra-African trade in biological resources while conserving biodiversity,
mitigating climate change and improving the livelihoods of especially rural populations directly dependant
on the harvest and development of these resources.
With regard to NTMs, African countries would be confronted with a number of challenges. The main
challenge would be to improve the quality of regulation to remove non-tariff barriers to trade in goods, and
to deliver competitive markets, while achieving essential public policy objectives relating to issues such as
health and safety and the protection of agriculture from pests and disease (Farahat, forthcoming).
UNCTAD’s work and its recent methodological approach to dealing with NTMs offer important tools to
African countries in dealing with this important issue.20 Similar tools available include the online TFTA
mechanism for reporting, monitoring and eliminating non-tariff barriers, and the efforts by AUC to
establish an African trade observatory.
Indeed, NTMs are still prevalent across Africa’s regional groupings, despite positive efforts made in
reporting and monitoring mechanisms. Efforts towards the harmonization and equivalence of pan-African
standards are essential, but not easy to achieve. This is particularly important in health and safety
standards in foodstuffs, a potential major item in the CFTA’s trade volume. Long-term policy reform and
institutional and capacity-building programmes across the continent are needed.
UNCTAD analyses have shown that the impact of NTMs is significant and exceeds that of ordinary
customs tariffs. Estimated ad valorem equivalents for Africa average between 10 and 25 per cent, and
some particular cases may raise prices by substantially higher margins. Price effects in agricultural sectors
tend to be particularly high. Harmonization and/or mutual recognition of SPS measures and TBTs would
go a long way to addressing the cost of NTMs.
The CFTA should also aim to develop criteria for preferential pan-African RoO (see box 3). Their function is
to prevent trade deflection whereby non-originating goods are shipped to the party to a free trade
agreement with the lowest external tariffs and then re-exported to the party with higher tariffs in order to
avoid paying these higher tariffs. Even more important, RoO should be designed to “favour regional value
10chains and to promote made-in-Africa branding as well as the promotion of trade among African
countries”.21 RoO are thus important in facilitating preferential and/or free trade in originating goods, i.e.
made or substantial transformed in Africa.
2.3 Services trade agreement
Services trade integration deserves to be included from the start in the CFTA negotiations.22 The rationale
for services negotiations is that the composition of many African economies is based on services, contrary
to what is often believed. The sector is an important employer and income generator. It is thus vital that it
should be part and parcel of the CFTA liberalization process from the beginning, especially as services are
inputs to the production and trade of goods.
A particular aspect of the services economy that is highly relevant for Africa is its creative economy.
Harnessing the creative and cultural talents of Africa, and the protection of regional ethnic intellectual
property rights, should constitute an important aspect of African continental economic integration. It
would build on the African Union Plan of Action on Cultural and Creative Industries (2008), and encourage
the development of new approaches to enhance the contribution of creative industries to the economic
and social development of Africa, especially as a source of jobs for youth.
2.4 Other policies
In order for the CFTA to play a deep economic integration role, African countries should look into
incorporating therein chapters on investment and competition. These two elements are important to
supporting interlinkages with developing intra-African trade. Having an investment chapter that promotes
intra-African investment and other forms of FDI to support and build the necessary trade-related
infrastructure and to ensure forward and backward linkages to the economies of member States is key. A
competition chapter will provide not only clarity for the relevant national business communities, but also a
safety net against potential negative abuses of the CFTA by transnational corporations. A form of RoO in
services and investment may be required to ensure that the benefits arising from the CFTA are realized on
the continent.
Special attention is needed with regard to trade facilitation measures. As indicated by UNECA, if progress
is made in reducing the cost to trade across borders, in addition to eliminating intra-African trade barriers,
the share of regional trade would more than double by 2022,23 with a particularly positive impact in the
trade of industrial products. Even more important, the trade opportunities brought by trade facilitation
measures on top of the CFTA would more than offset the costs from declines in tariff revenue experienced
by African countries.
The CFTA can also help in creating the conditions for African countries to take advantage of existing and
new regional value chains (RVCs). An integrated African market would facilitate the integration of different
countries in the various stages of production according to their competitive advantages, thus also
fomenting the creation of new regional value chains that could eventually become part of global ones.
Developing regionally integrated value chains and markets is both feasible and important for Africa. A
recent analysis for UNCTAD on prospective RVCs in the agricultural sector (Dairon, 2016) provides
policymakers with tools to better understand the prioritization of value chains, a process that has to mix
research, participatory assessment, field investigation and political will.
Of particular importance in the CFTA framework will be the inclusion of a dispute settlement or conflict
avoidance mechanism. It needs to be integrated into the road map and architecture for the CFTA. It
should also recognize and build upon pan-African institutions with jurisprudence that already exist, such
as the African Court of Justice, the AU Commission on International Law and the African Institute of
International Law. The dimension of whether an adequate dispute settlement mechanism should be
11permanent (for example if it is housed in one of these pan-African institutions) or whether it should be on an ad hoc basis requires the attention of the negotiators. Finally, since practically all African countries are members of – or observers to – the WTO, special attention must be given to the compatibility of the CFTA negotiated outcomes with the obligations/commitments undertaken under the WTO. In this context, consideration should be given to the modalities for notifying the agreement to the WTO once it is concluded, both in terms of goods and services. These include the enabling clause, GATT article XXIV and GATS article V, bearing in mind the WTO Doha agenda negotiations to clarify such rules to improve their development dimension. 12
Chapter 3 Complementary Enabling Environment
Boosting intra-African trade through the formation and implementation of the CFTA needs to be
constructed within an overall enabling environment. Stimulating trade and contributing to economic
growth and development is a necessary but not a sufficient condition for trade expansion to take off and
continue on a sustained basis. Related issues to be tackled to improve the enabling environment for trade
development include global warming, commodity prices, food security, political security and stability,
internal and cross-border migration, speculative capital movements, unilateral restrictions to the trade of
strategic materials, or lacunae in governance. These can have an impact on the organization of intra-
regional trade. In a globalized world what happens somewhere else may have an impact on the most far-
removed economies and societies across the globe (the ‘butterfly effect’). It is very difficult for
governments and enterprises to figure out the costs, benefits and unintended consequences of such
factors. Hence it is important in the context of the building up of African continental integration to pay
attention to and put in place strategies to enhance the enabling environment for African countries
participation in regional and international trade.
3.1 Social, cultural, security and political governance
With the CFTA, the expected expansion in intra-Africa trade in goods and services would be accompanied
by people flow across Africa including entrepreneurs, services providers, economic migrants, government
officials and tourists. This can lead to greater social and cultural inter-exchanges among African countries
push for use of common African languages to facilitate communication, as well as raise political
governance issues with concerns over security, stability, illegal trade practices and corruption.
(1) African languages and cultures
Traders, as well as other people group engaging in the CFTA, needed to communicate easily hence
languages are important. The African Union has adopted Arabic, English, French and Portuguese as its
official working languages. It also recognizes African (indigenous) languages, often used by sub-regional
organizations.24 Vehicular cross-border languages are perceived as a factor that can promote African unity
and efforts are dedicated to their conservation. Some 170 million Africans speak an Arabic dialect; 130
million speak English; 115 million speak French; 100 million speak Swahili; 50 million each speak a Berber
dialect and Hausa, the lingua franca of the Sahel; 20 million speak Portuguese; and 10 million speak
Spanish.25 They speak them as either native or common lingua franca languages and they are very much
aware of the usefulness of the international ones for reaching out to the world. The higher the number of
working languages adopted by sub-regional organizations and government agencies, the thinner coverage
will be, as long as resources remain scarce. 26 If the purpose of continental trade and investment
integration is to ultimately project Africa as an assertive global economic powerhouse, efforts should not
be spared to promote and expand the learning and use of the most useful languages for business
purposes.27 The cross-border exchange of native speakers as African language teachers is also critical for
steady progress in the economic sphere. Formulation of cultural exchanges and encouraging trade in
African creative industries would strengthen solidarity and enhance common vision and approach to
African economic development.
(2) Transparency and Governance
The question of the shadow economy of Africa is estimated to be significant by any standard of proportion
(see Table 4). 28 This concerns revenue loss from tax evasion, trade mis-invoicing, and political and
administrative corruption as well as criminal activities resulting from the clandestine traffic of endangered
species, hazardous materials, weapons of mass destruction, narcotic drugs, prostitution, gambling and
the like, and parked in tax havens.29 In a continent where no less than 3/4 of the population lives on less
than two U.S. dollars a day, it is important to find solutions to drastically reduce informality, lack of
transparency and corruption, by exploring, adapting and adopting practices that have worked in other
13regions. These are major impediments to socioeconomic development and integration because, among
other distortions, they exacerbate socioeconomic and regional inequalities while eroding government
legitimacy. Transparency and integrity need to be factored in as components to any sustainable
integration initiative.30
Table 4: Size of the Shadow Economy: Selected African Countries As percentage of GDP 2007
Algeria 31.2 Liberia 44.2
Angola 42.1 Libya 30.9
Benin 49.1 Madagascar 38.5
Botswana 31.9 Malawi 39.4
Burkina Faso 39.6 Maldives 28.6
Burundi 39.6 Mali 39.9
Cameroon 31.4 Mauritania 35.1 *
Cape Verde 33.4 Mauritius (lowest) 21.9
Central African Republic 45.1 Morocco 33.1
Chad 42.2 Mozambique 39.8 *
Comoros 39.4 Niger 40.4 *
Congo, D R 46.7 Nigeria 56.2 *
Congo, R 44.6 Rwanda 40.1*
Côte d'Ivoire 47.0 Senegal 41.7
Egypt 33.1 Sierra Leone 42.9
Equatorial Guinea 30.1 South Africa 25.2
Eritrea 41.4 Sudan 34.1 *
Ethiopia 35.1 Swaziland 40.7 *
Gabon 47.3 UR Tanzania 53.7
Gambia 40.9 Togo 34.9 *
Ghana 38.3 Tunisia 35.4
Guinea 39.2 Uganda 40.3
Guinea-Bissau 41.6 Zambia 43.9
Kenya 29.5 Zimbabwe (highest) 62.7
Lesotho 28.8 Average, 49 countries 39.0
* Average 1999-2006. Source: Schneider at al. 2010
(3) Security of Trade Routes
More than 90 percent of merchandise trade is carried by sea, so that the security of sea corridors is of the
essence to international economic order, particularly concerning the transcontinental transport of fossil
fuels. Figure 3 shows the piracy and armed robbery incidents reported in 2014 in terms of real crimes and
not just threats. They are concentrated in Southeast Asia and the Horn of Africa (Djibouti, Eritrea, Kenya,
Somalia, and United Republic of Tanzania) and the Gulf of Guinea where at least ten countries are at risk
(Benin, Cameroon, Cote d’Ivoire, Equatorial Guinea, Gabon, Ghana, Nigeria, Sao Tome and Principe, Togo,
and the Democratic Republic of Congo). This is a clear concern, including for international trade, which
requires a concerted response by African governments, in close cooperation with the international
community, as African nations need policing assistance in the Atlantic and Indian oceans and the
Mediterranean and Red seas. Only a few ports of African are designated in the Container Security Initiative
(CSI) of 2002 including the ports of Alexandria, Egypt, and Durban, South Africa.31
Such security concerns are of particular consideration for those African countries that are major world
suppliers of raw material inputs and intermediate goods, North, East and Westbound. Such raw materials
may be critical to the functioning of global value chains, and hence for international investors and
importing countries that require predictability and transparency in supply sources. This applies to the
trade of foodstuffs, as well as supply of food aid by the United Nations and other agencies or potential
14African countries in conflict affected areas, as much as to minerals, along trading routes that have existed
for thousands of years of war and peace but that require efficient policing now and in future. In the context
of intra-African trade, this is pertinent as well. Some bulky goods may have to be transported over land or
overseas, and peace and security along the transport routes is crucial to facilitate the smooth flow of trade,
as well as movement of people.
Figure 5 : Piracy & Armed Robbery Map 2014
Source: Piracy Reporting Centre, International Maritime Bureau (IMB), Commercial Crime Services
(CCS), International Chamber of Commerce (ICC). This image was captured on 3 November 2014.
Online information on each individual attack can be obtained by clicking on the pointers.
https://www.icc-ccs.org/piracy-reporting-centre/live-piracy-map.
3.2 Strategic Commodities
In respect of raw materials, some African countries are major players as suppliers of scarce strategic
mineral inputs with no artificial substitutes, like chromium, antimony, tungsten and platinum, which are
critical to industrial production. The fact is that every industrial country imports some of the raw material
inputs that are necessary for its industrial production and that international cooperation results
unavoidable as a consequence (see Table 4 and Annex Table 5).32
15Table 5: African Production of Selected Raw Materials 2012, percentages
Product Top 5 world producers from Africa, Top 5 world
share of world production producers’ share
Antimony 5. South Africa, 2% 95%
Chromium 1. South Africa, 44% 87%
Cobalt 1. DR Congo, 68%
3. Zambia, 4% 84%
Platinum group metals 1. South Africa, 59%
99%
5. Zimbabwe 4%
Tungsten 5. Rwanda, 1% 95%
Palm oil 5. Nigeria, 2% 93%
Source: Export restrictions in raw materials trade, 2014.
Petroleum and natural gas are significant, given the vast volumes exported by the main producers, among
which four African countries are members of the Organization of the Petroleum Exporting Countries
(OPEC) namely: Algeria, Angola, Libya, Nigeria) and key suppliers to the main industrial economies of
Europe, North America and Asia (see Table 5). For instance, Angola continues to be one of the top three
oil suppliers to China, the world’s largest net importer of petroleum and other liquid fuels. Nigeria is one of
the top six oil suppliers to the United States, the second largest net importer. As African countries boost
trade among them with the CFTA, and transition into the production of value-added, inter-mediate and
manufactured goods, the process of industrialization and structural transformation with higher
technological content will require increased use of such strategy raw materials. It is useful for African
countries to examine such long-term issues in the formation of the CFTA so as to position policies to
facilitate trade in strategic raw materials.
Table 6: Africa’s Major Oil Producers 2013 estimates
World Country Daily Production Share of
Ranking in Barrels World Production, %
13. Nigeria 2,525,000 2.62
15. Algeria 1,885,000 2.52
16. Angola 1,840,000 2.31
27. Libya 700,000 0.85
28. Egypt 680,500 0.80
35. Equatorial Guinea 346,000 0.41
39. Republic of Congo 274,400 0.33
41. Gabon 241,700 0.29
43. South Africa 191,000 0.22
51. Chad 115,000 0.13
52. Sudan 111,700 0.13
56. Cameroon 77,310 0.09
60. Cote d'Ivoire 58,950 0.07
Source: International Energy Statistics, U.S. Energy Information Administration.
http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm
163.3 Money and Finance
(1) Financing Development
Financing for development is a large issue for Africa. If physical capital and human capital are plentiful in
Africa, financial capital and entrepreneurship are scarce goods, especially when compared with Africa’s
overall need for public goods, from infrastructure development to health and food security to public
transportation to infrastructure for information and communication technologies (ICT) to government
accountability, and so on. Africa’s infrastructure lags significantly behind non-African developing countries
in key areas, like meeting housing needs, road density, electricity production, access to water and
sanitation, etc. Infrastructure development is fundamental for economic growth and poverty reduction,
and no other developing region depends so heavily on aid as Africa does (see Table 7).33
According to some World Bank estimates, at least USD 75 billion (or 12 percent of the region’s aggregate
output) are necessary every year for infrastructure development in Africa, roughly 1/2 of it for investment in
new infrastructure and 1/2 for the operation and maintenance of the existing facilities. The yearly funding
gap stands at about 1/2 of needs. African governments pay for 2/3 of the financing totals; the private
sector, for 1/5; foreign aid, for just 1/10; and the rest is provided by other sources of soft financing and
grants, like China, India, Japan and some Arab States.34
Table 7: Main Donors for Infrastructure Projects in Sub-Saharan Africa 2013
Hard Soft
(physical aspects) (capacity building)
Institution / Country % Institution / Country %
Water and Sanitation 1. World Bank 22 1. European Union 23
2. European Union 14 2. World Bank 16
3. African Development Bank 12 3. Germany 13
4. Germany 8 4. Japan 6
5. France 7 5. Canada 5
Transport 1. European Union 32 1. World Bank 23
2. World Bank 25 2. European Union 19
3. African Development Bank 16 3. United States 17
4. Japan 5 4. African Development Bank 14
5. United States 5 5. United Kingdom 11
Information and 1. African Development Bank 31 1. World Bank 25
Communication 2. United Kingdom 16 2. Finland 13
3. OPEC 12 3. Canada 11
4. World Bank 10 4. Japan 10
5. Japan 8 5. European Union 10
Energy 1. World Bank 38 1. African Development Bank 45
2. African Development Bank 22 2. World Bank 29
3. Arab Fund 8 3. European Union 5
4. Japan 5 4. Germany 4
5. Norway 5 5. United States 3
Source: Development Co-operation Report 2014.
Finding the right combination to energize infrastructure financing can pave the road for effective regional
integration. One part of the composite is to reduce the inefficiencies of present public work and utility
projects. Another part is to mobiliser the support of the homegrown corporate sector, which includes a
number of multinationals with growing cross-border investments (see Table 8). They would be among the
first beneficiaries of enhanced integration, a more enabling environment and better public facilities and
services so that harnessing them as partners for development is clearly a priority. 35 Yet another
17indispensable part is to diversify and deepen the sources of financing and investment, both domestic and
foreign.36
Table 8: The Top 30 Sub-Saharan Multinational Corporations
1. Oando Nigeria Petroleum
2. Kenolkobil Kenya Petroleum
3. African Petroleum Nigeria Petroleum
4. Dangote Group Nigeria Diversified (construction)
5. United Bank for Africa Nigeria Financial services
6. Kenya Airways Kenya Transport
7. Groupe Sifca Cote d’Ivoire Diversified (forestry)
8. Zenith International Bank Nigeria Financial services
9. First Bank of Nigeria Nigeria Financial services
10. Conoil Nigeria Petroleum
11. Oceanic Bank International Nigeria Nigeria Financial services
12. Ecobank Transnational Inc. Togo Financial services
13. Sonatel Mobiles Senegal Telecoms
14. Guaranty Trust Bank Nigeria Financial services
15. The Mauritius Commerce Bank Mauritius Financial services
16. Ireland Blyth Mauritius Diversified (construction)
17. UAC of Nigeria Nigeria Diversified (financial services)
18. Skye Bank Nigeria Financial services
19. International Trading Oil and Senegal Petroleum
Commodities Corp.
20. Bank PHB Nigeria Financial services
21. Cecagadis Gabon Diversified (retail)
22. Groupe Mon Loisir Mauritius Diversified (n/a)
23. Eurofind Afrique Cote d’Ivoire Diversified (n/a)
24. Food and Allied Group of Companies Mauritius Diversified (agribusiness)
25. Diamond Bank Nigeria Financial services
26. Compagnie du Komo Gabon Diversified (industrial goods and
services)
27. Rogers Group Mauritius Diversified (construction)
28. Access Bank Nigeria Nigeria Financial services
29. New Mauritius Hotels Mauritius Tourism
30. Kenya Commercial Bank Kenya Financial services
Source: Pioneers on the Frontier, 2011.
(2) Financial sector development
Financial sector development and access to finance and investment in Africa is another critical factor for
African integration and development. Access to finance by governments, firms and households in Africa
lag behind other developing regions, although financial enhancement has increased in the last decade.
This varies dramatically from country to country, with half of the population having a bank account in
South Africa and one in a hundred in Niger or South Sudan. African finance is dominated by private
commercial banks (3/4), with few State-owned banks and nonfinancial institutions. For the most part,
banks are well capitalized and profitable but exhibit comparatively high overhead costs and they are
generally not focused on rendering innovative financial services to the public at large, which is key to
‘financial democratization’. 37
Cross-border banking has steadily increased in the last two decades, notably in the case of South African
banks and banks from outside Africa that have a strong presence in many countries. For instance,
Portuguese banks own more than 80 percent of banking assets in Sao Tome and Principe, and more than
60 percent in Mozambique. Cross-border banking supervision is insufficient though, creating
opportunities for opaque practices and systemic crises.
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